In the wake of the U.S. Supreme Court ruling upholding most of the Patient Protection and Affordable Care Act, Alabama officials are taking their time deciding whether the cash-strapped state will expand its Medicaid enrollment by more than 400,000 residents.

While the court upheld much of the law, it nixed a provision allowing the federal government to withhold existing Medicaid funds from states that refuse the expansion.

That means Alabama can pass up the expansion and still keep the roughly $4 billion the federal government sends annually to fund the state-and-federal partnership that provides health care access to the poor.

The decision might not be an easy one for state officials already struggling to fund the $6.3 billion program that currently provides health care to more than 900,000 Alabamians, roughly 19 percent of the state’s population.

While Florida Gov. Rick Scott announced July 1 – just three days after the court ruling – that his state would not expand, Alabama officials stressed after last week’s ruling that assessing the potential impact of expanding or not expanding could take weeks.

“I don’t think you can make a decision about expanding Medicaid without understanding the entire context of how that expansion or lack thereof would play into the health care system,” said Alabama Health Officer Don Williamson.

Meanwhile, Gov. Robert Bentley, who called the law “the single worst piece of legislation to come out of Congress” and called for its repeal after the court’s ruling, is not ready to say if Alabama will bow out of the expansion.

“We have serious concerns about the increased costs associated with expanding the entitlement programs, but we need to understand the larger implications as a whole before deciding the best course of action,” said Jeremy King, Bentley’s communications director.

And the implications could be numerous and costly. An April 2011 study by the University of Alabama at Birmingham’s Lister Hill Center for Health Policy predicts the state would open Medicaid to more than 306,000 uninsured Alabamians if it goes along with the expansion. Another 165,000 insured residents would qualify if they dropped their out-of-pocket insurance, the report projects.

That means the expansion could add nearly 471,000 people to the state’s Medicaid rolls, pushing enrollment to roughly 1.38 million.

While the expansion wouldn’t take effect until 2014 and the federal government would cover the cost through 2016, the federal funding would only cover 95 percent in 2017 and would taper to 90 percent by 2010.

According to preliminary estimates from the Alabama Medicaid Agency, that would be unaffordable for the state, pushing the overall Medicaid budget from $6.3 billion to a projected $13.2 billion by 2020.

But rejecting the expansion would also bring additional costs for the program that Williamson said last month could collapse if voters don’t approve a constitutional amendment that would allow the state to draw nearly $200 million from the Alabama Trust Fund.

According to Paige Powell, assistant professor of health services administration at UAB, Alabama is currently home to about 100,000 poor residents who qualify for Medicaid but haven’t enrolled. When the ACA’s insurance mandate takes effect in 2014, she said, those residents will likely enroll in Medicaid to avoid paying the tax that would be charged to all uninsured Americans.

In that scenario, the state’s Medicaid enrollment would climb above 1 million residents, but it would not receive any additional funds to cover the increase. Instead, the state would have to make do with existing federal funding that only covers about 68 percent of the state’s Medicaid expense.

Another question is what to do about the residents who can’t afford insurance, but would still be subject to paying the tax in 2014 if they can’t qualify for Medicaid.

According to Hunter Walton, senior vice president of federal affairs for the Alabama Hospital Association, if the state rejects the Medicaid expansion, those consumers would likely be able to purchase coverage on soon-to-be-created insurance exchanges.

In that scenario, funding that would have gone to Medicaid expansion would instead be diverted to provide federal subsidies that would assist the poor with the cost of health insurance.

But Williamson said he wasn’t sure if those funds would necessarily transfer like that, and Howard Bogard, a partner at Burr & Forman LLP and chair of the firm’s health care section, said it remains unclear whether the U.S. Department of Health and Human Services or the Center for Medicare and Medicaid Services could make such a change without congressional approval.

It’s unlikely Congress would address that issue until after the November elections, he said.

According to Bogard said the 27 states that opposed health care reform, including Alabama, are most likely to reject the Medicaid expansion.

Evan Belanger covers health care, technology and more for the Birmingham Business Journal.

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